Anyone for an Irish Double Dip?
We continue our series on Global Tax Governance as a GRC component to clear the confusion and misperception between tax avoidance and tax evasion. Multinationals like Google, Starbucks, Vodafone or Amazon, have been publicly humiliated for the alleged accusations on tax avoidance. Most multinationals will focus on extensive disclosures in the annual reports specifically related to the amount they are paying with details like to whom and for what.
Global tax disclosures may be the beginning, however, tax planning to reduce the effective tax burdens on the one hand and stakeholders' emphasis on conducting businesses based on approved Tax Governance, corresponding to major international Corporate Governance codes or recommendations may be the solution.
The Double Irish
The Double Irish dip in short involves the corporation of a second Irish company. This company is responsible for managing royalties earned in EMEA countries, and is responsible for coordinating activities for the EMEA region.
The company is usually incorporated by the Dutch or similar intermediate holding company, which holds the intellectual property right, grants the Dutch intermediate holding company a licence for which in return this company grants the Irish Ltd. Company with a sub-license.
As a result of this structure, the company's enterprises within the EMEA pay the Irish Ltd company for the right to use the IP rights. In Ireland, those payments are taxed at 12.5%, whereas, in other EMEA countries, they are deductible at the local regular rate. Newspapers report that 88% of the non-US royalties are directed through this Irish sub-subsidiary. Elementary, as a certain master detective would conclude.
Global consequences
The current focus on global taxation, is fed by the grass root outcry that when global companies generate magnificent profits why is the tax payments out of proportion every year?
Already in 2007, the OECD set up a Steering Group to tackle aggressive tax planning. Part of the strategy was to create a classified database only accessible to tax authorities. The catalog documents several examples of aggressive tax planning, so that the participating states can share a great deal of knowledge. Since then, several reports have been published. Perhaps these reports have influenced the multinationals' tax structures.
Due to the lack of global cooperation between the authorities and oversight functions the best bet is probably to rely on the corporate social responsibility (CSR) recommendations to report on:
- investments in poorer countries when wages there are still conveniently low,
- tax avoidance through debt financing
- a cobweb of transfer pricing structures.
Responsible global companies are increasingly aware their role in the information society anno 2014, by engaging in culpable behavior and accepting responsibility for paying high taxes on very high profits and disclosing them in the annual reports.
